Compliance And Anti-Avoidance

National Insurance Contributions Exemption for Holiday Pay

The exemption from national insurance contributions (NICs) of holiday pay paid via a third party is to be removed for all sectors outside the construction industry. The exemption was aimed at addressing problems of high mobility and turnover of the labour force in the construction industry, but working time regulations now ensure holiday entitlement is preserved in all sectors and therefore an ongoing exemption for construction is no longer appropriate. However, given the longstanding nature and wide range of benefits typically provided by schemes, the exemption will be maintained for the construction industry for five years to give it sufficient time to adjust.

Employers outside this sector are increasingly using the exemption solely to reduce their and their employees’ NICs liability, and therefore secondary legislation now laid before Parliament will remove the exemption for these employers from 30 October 2007.